Technology

Most venture-backed or venture-track technology startups incorporate as Delaware C corporations because institutional investors strongly prefer them. Delaware offers flexible equity structures, a well-developed body of corporate case law, and predictable governance rules. For companies that will remain closely held or are not targeting institutional venture capital, a North Carolina LLC offers pass-through taxation and flexibility without C corporation governance complexity. The right choice depends on the company’s funding plan, growth trajectory, and exit goals. Ward and Smith advises founders on entity selection at formation and on conversion strategies as funding plans develop.

A SaaS customer agreement should be closely tailored to the SaaS offering, but at the least should address: subscription terms and pricing; acceptable use restrictions; data ownership and portability on termination; uptime commitments and service level remedies; limitations of liability and disclaimer of warranties; confidentiality obligations; IP ownership of customer data and any customizations; data privacy and security requirements; and dispute resolution provisions. Many technology companies start with template agreements not tailored to their specific product, user base, or risk profile. Ward and Smith drafts and reviews SaaS agreements from both the vendor and customer perspective, with particular attention to the data ownership and liability provisions that create the most exposure.

Section 409A of the Internal Revenue Code requires that stock options issued to employees be priced at or above the fair market value of the underlying stock on the grant date. For private companies, this requires a defensible independent valuation before each grant. Issuing options below fair market value triggers immediate income recognition and a 20 percent penalty tax for the employee, creating significant liability for the company. For startups issuing equity compensation, a current 409A valuation from a qualified independent firm is essential before each grant cycle. Ward and Smith advises on the timing of valuations and the equity compensation documentation required to protect both the company and its employees.

Technology companies typically need four types of IP protection. Patents cover novel inventions and algorithms where competitive advantage justifies the cost and timeline. Trade secret protection under N.C.G.S. Chapter 66 applies to proprietary processes, customer lists, and know-how. Trademark registration protects brand names, product names, and logos. Copyright covers software code, documentation, and content. The right priority depends on the company’s competitive position, the nature of its technology, and its licensing or exit strategy. Ward and Smith’s IP attorneys bring engineering and software development backgrounds to portfolio strategy, not just individual filings.

The North Carolina Business Court, established in 1996, is a statewide superior court dedicated to complex business disputes. It handles technology licensing, trade secret misappropriation, non-compete enforcement, and corporate governance matters. Cases can be designated to Business Court when they involve trade secrets, computer technology, or intellectual property. Business Court judges issue detailed written rulings that create a more predictable commercial legal environment. Ward and Smith attorneys are regular Business Court practitioners, including Edward J. “Trip” Coyne, a former Business Court clerk who understands the court’s procedures and expectations from the inside.

Employee departures are one of the most common triggers for trade secret disputes. On the preventive side: ensure all employees with access to proprietary information have signed IP assignment and confidentiality agreements; revoke systems access promptly on departure; and document what information qualifies as a trade secret. On the responsive side, act quickly. Courts require evidence that the trade secret holder took reasonable steps to protect the information before granting emergency injunctive relief. Ward and Smith handles emergency temporary restraining orders and preliminary injunctions in trade secret cases under both the North Carolina Trade Secrets Protection Act and the federal Defend Trade Secrets Act.

A venture capital financing involves several parallel workstreams: negotiating the term sheet on economics and governance; drafting and negotiating the preferred stock purchase agreement and investor rights agreement; updating the cap table and option plan; conducting and responding to due diligence on corporate structure and IP ownership; and closing the transaction. Term sheet provisions on liquidation preference, anti-dilution protection, board composition, and pro rata rights have long-term consequences for founders that are not always apparent at first read. Ward and Smith represents both companies and investors in venture financings, which means our attorneys understand market-standard terms and where negotiating flexibility actually lies.

Without an explicit work-for-hire clause or IP assignment provision, the developer may retain rights in the code it creates, even if fully paid. This is the most commonly overlooked risk in software development agreements. Similarly, incorporation of open-source components may impact the licensing, IP ownership or data security terms of a software development agreement.  Key provisions to address include: IP ownership and assignment; milestone and acceptance criteria; change order procedures; confidentiality obligations; restriction or authorization to use open-source code or component; source code escrow arrangements for business-critical software; warranties, indemnification, and liability caps; and termination rights. Ward and Smith drafts and negotiates these agreements from both the company and vendor perspective, with particular attention to the IP assignment provisions that are most frequently overlooked.